CREDIT RATING

in
“BANK OF INDIA”
OBJECTIVE OF THE STUDY
 To know day to day function conducted in
bank.

 Various policies, procedures related to

Loans.

 Various norms adopted by the Bank of

India.
 BANKS..HOW THEY
WORK?
 Accept Deposits

 Give interest at specific rate

 Lend money

 Charge interest

 Generate profits
DIVERSIFICATION OF FUNDS
BY BANKS
 TYPES OF CREDIT
FACILITIES
 FUNDED FACILITIES
-Deployment of the funds banks
-by granting advances
OR
-by making investments
-meeting the gaps
-fund requirements of clients

 Purpose:-Acquisition of fixed assets / machinery or for

financing projects
 NON-FUNDED-

 -Banks are able to fetch Commission/fee

 -No blocking of funds of borrower
 Liquidity position balanced
 Purpose:-For procuring / manufacturing of
goods meant for export
 PROCESS OF LOAN
SANCTION
1. Application for working capital limits
and/or project finance
2. Submission of various documents by
the customer
3. Valuation and Legal Research
4. Credit Risk And Credit Rating
5. Preparation of Proposal
6. Post sanction pre disbursement by
head office (For loan > 50 crores)
7. Issue sanction letter
8. Vetting of documents
 1.APPLICATION OF
FINANCE
 When Customer want to take loan from
bank then,
 He is supposed to submit the
application regarding:-
 Type of loan
 Time period
 For what purpose
2.SUBMISSION OF VARIOUS
DOCUMENTS
 After submission of application for loan,
Customer required to submit following
documents(for credit worthiness) :-
 Balance Sheet
 P&L Account
 Cash flow statement
 Fund flow statement
 3.CREDIT RATING
 CREDIT RATING depends upon various
Parameters:-
 Financial Risk
 Market Risk
 Managerial Risk
 Security Value
 Contingent Risk
 Capital Market Perception
 Compliance
 Example1:-Financial Risk

Interest coverage ratio More than 3.00 5

3.00 to 2.00 4

1.99 to 1.50 2

Less than 1.50 1

 Example2:-FINANCIAL RISK

Total Liabilities to Less than 2.00 5

net worth

2.00 to 3.00 4

3.01 to 4.00 2

More than 4.00 0

 Example3:- SECURITY VALUE
Guarantees Central Govt./Reputed 2
FIs/Reputed
Scheduled Banks

 
Promoter-Directors’ 1
guarantee/3rd party
guarantee

 
No guarantee 0
 Risk rating
 Parameters Maximum Maximum

applicable score score

(B) (C)
 ---------------- -----------------
-------------------
 Financial risks - Static 20
 Financial risks - Dynamic 17
 Market risks 09
 Managerial risks 09
 Security Value 06
 Capital market perception 04
 Contingent risks 05
 Compliance 10
 Total - 80

Percentage on risk factors =C/B x 100

Score obtained Rating to be
assigned
 

80% & above AAA

65% to 79% AA

50% to 64% A

Below 50% B

AAA-Quality of lending is considered to be high and risk is

at its minimal
AA-Well established borrowers with financial liquidity,
strength and stability
A-This group belongs to the lower end of quality range
B-Borrowers of average liquidity, financial strength and
stability
 4.VALUATION & LEGAL
RESEARCH
 Bank will demand some property,
 As a security,

 Any security borrower will offer,bank has

to do legal valuation and research for that.
 5.PREPARATION OF
PROPOSAL
 Proposal Includes:-

 All the track records & information of the applicant

 Written description,
 Contract conditions,
 Financial statements
 Assessment Report of property by Officer
 All documents
 6. POST SANCTION PRE
DISBURSEMENT BY HEAD
OFFICE
 The next step taken by Head Office,
 Issuing Post sanction letter,
 Before disbursement of Loan

 Whether,All Documentation done or

not.
 7.ISSUE OF SANCTION
LETTER
 Sanction letter contains:-

 Term & Conditions

 Sanction Limit
 Security-principal or Collateral
 Rate of Interest
 Repayment terms
THANKS